Interest rate reaction functions for the euro area Evidence from panel data analysis

Karsten Ruth

No 2004,33, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: As of today, estimating interest rate reaction functions for the Euro Area is hampered by the short time span since the conduct of a single monetary policy. In this paper we circumvent the common use of aggregated data before 1999 by estimating interest rate reaction functions based on a panel including actual EMU Member States. We find that exploiting the cross-section dimen- sion of a multi-country panel and accounting for cross-country heterogeneity in advance of the single monetary policy pays off with regard to the estimated reaction functions' ability to describe actual interest rate dynamics. We retrieve a panel reaction function which is demonstrated to be a valuable tool for evaluating episodes of monetary policy since 1999.

Keywords: Monetary Policy; Reaction Function; Euro Area; Panel Data (search for similar items in EconPapers)
JEL-codes: C33 E43 E58 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:2299

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